Recent Issuance of 'Non-Action Opinion Letter'
Exclusion of Auction Balance Loan and PF Loan Limits Until Year-End
PF Developer's Equity Regulation Reduced from 20% to 10% During Auction and Public Sale Proceedings
The Financial Supervisory Service (FSS) has decided to implement an exceptional measure that exempts savings banks from applying the current PF loan limit regulations to acquisition fund loans (auction balance loans) executed when disposing of land-secured loans, in order to revitalize real estate project financing (PF) auctions and foreclosures until the end of this year.
According to the FSS on the 22nd, the Small and Medium Finance Inspection Division 1 and the Small and Medium Finance Supervision Division recently issued a "non-action opinion letter" regarding auction balance loans related to the disposal of distressed PF auctions and foreclosures. Auction balance loans refer to loans borrowed by auction winners from banks or savings banks using real estate as collateral.
The FSS stated, "We aim to support savings banks in managing soundness indicators such as delinquency rates by swiftly resolving distressed assets and to create conditions that enable business normalization through new operators."
The Mutual Savings Banks Supervision Regulations restrict savings banks' PF loans so that credit extensions do not exceed 20%. Additionally, as part of soundness measures, the financial authorities have required from this year that existing land-secured loans accumulate loan loss provisions similarly to PF loans, and that new land-secured loans also be included in the credit extension limit.
However, when savings banks execute auction balance loans during the disposal of land-secured PF projects, situations arise where credit extension limits are exceeded. In response, the FSS decided through the non-action opinion letter to relax regulations by excluding land-secured auction balance loans from PF loan limit regulations until the end of this year. Nonetheless, loan loss provisions must be handled in accordance with PF loans.
Furthermore, the financial authorities have eased the self-capital regulations for developers during the land-secured auction and foreclosure process to accelerate the normalization of the PF market. While developers eligible for PF loans from savings banks must invest at least 20% of self-capital in the project, this ratio will be relaxed to 10% when proceeding with land-secured loans through auctions and foreclosures. To apply the relaxed regulations, conditions such as the auction winning price being 85% or less of the principal of the land-secured loan and a change in the developer must be met.
An FSS official explained, "This decision reflects the necessity of proactive management of PF loan risks, the need to support acquisition funds for smooth disposal of auctioned projects, and the intent behind revising the standard regulations for savings banks to resolve distressed projects."
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